Today on Wall Street: Better-than-expected earnings ahead of the Fed

07/28/2021 | 09:19am

Investors preferred to err on the side of caution yesterday. Even the Nasdaq went into "pause" after five consecutive sessions of gains. Buying pressure seems to be easing as companies continue to dump tons of results, before Fed boss Jerome Powell speech later today.

Yesterday, many tech giants released their results. Microsoft’s momentum continues: it has once again published quarterly results beyond analysts' estimates – the 10th time in a row. However, it is Alphabet's performance that is causing the most excitement. Google's parent company had an excellent second quarter, driven by the increase in advertising spending in the United States, which is expected to record its strongest growth since the Second World War... nothing less! Alphabet's share gained 5% in after-hours trading. Finally, the results of Apple are more contrasted. If the brand has exceeded market expectations in terms of profit and revenue, Apple points to the global shortage of semiconductors, which affects its production. The growth of Tim Cook's group could therefore suffer in the coming quarters.

Yesterday, the IMF updated its outlook on the global economy. It is more optimistic than it was in April as it still expects global growth of 6% in 2021 but raises its estimate for 2022 to +4.9%. The forecast for 2022 is thus revised upwards by 0.5 points thanks to the effects of the vaccine campaigns, which will enable activities to strengthen more rapidly than expected. The role of government, not to say stimulus packages, is central to the IMF's forecast, which takes for granted that the US Congress will pass the Biden administration's infrastructure investment plan this year.

These stimulus packages have a considerable impact on base metal prices. By focusing on infrastructure in the United States and Asia and on the energy transition in Europe, all of which are metal-intensive, these plans are fuelling a surge in hard commodity prices.

Let's keep in mind that a project to develop or modernize infrastructures is generally synonymous with a copious demand for steel and therefore iron ore.  The price of iron ore, which had already jumped 65% in 2020, is back up again this year with an additional increase of 38%. This is obviously great for steelmakers, who should post solid results in 2021. Bloomberg recently published some surprising statistics for the sector, including one that speaks for itself: ArcelorMittal is expected to post higher operating income this year than major groups in other sectors, such as PepsiCo and McDonald's in the restaurant sector and Moderna in the healthcare sector. Secondly, the prices of metals that are most sensitive to the energy transition issue have continued to rise, to the point of forcing Beijing to sell off part of its stocks in order to curb price inflation. This is the case for tin (+69.5% in 2021), cobalt (+58.9% in 2021) and lithium (+68% in 2021 for lithium carbonate), which together occupy the podium of the metals most impacted by tomorrow's industries according to the renowned Massachusetts Institute of Technology.

 

Economic highlights of the day:

All eyes are on the Fed. Economists expect the Fed funds rate to remain in a range of 0% to 0.25% and do not expect any specific communication on the reduction of the amount of asset purchases. Canadian inflation, US trade balance and weekly oil inventories are also on the agenda.

The dollar trades at EUR 0.8476. Gold is still under pressure at just below USD 1,800 per ounce. Oil is stabilizing at USD 74.8 per barrel of Brent and USD 72.0 per barrel of WTI. The T-Bond yield is down slightly to 1.23% over 10 years. Bitcoin remains positioned around USD 40,000.

 

On markets:

* Apple reported quarterly results Tuesday that beat analysts' expectations as consumers snapped up the high-end versions of the 5G-enabled iPhone models and signed up for services from the Apple firm. The stock is down 1.1% in pre-market trading, however, as the company warned that global semiconductor shortages are expected to start affecting its iPhone production and weigh on revenue growth.

* Alphabet, Google's parent company, reported record quarterly revenue and profit on Tuesday as its results were boosted by a jump in advertising revenue as more customers turned to online shopping with the health crisis. The stock is up 3.7% in pre-market trading.

* Microsoft on Tuesday reported quarterly revenue ahead of Wall Street expectations, driven by accelerating demand for its cloud services as more people continued to work or study online. The stock gained 0.5% in pre-market trading.

* Pfizer on Wednesday raised its 2021 sales forecast for its COVID-19 vaccine, developed in partnership with Germany's BioNTech Group, to $33.5 billion from $26 billion on strong global demand.

* McDonald’s reported Tuesday sales that beat Wall Street expectations thanks to an easing of health restrictions and the launch of a new menu inspired by South Korean pop group BTS.

* Humana - The health insurer reported a 68% drop in second-quarter profit on Wednesday due to rising medical costs. However, the group confirmed its full-year adjusted profit forecast.

* Starbucks - The coffee chain's stock was down 2.8% in premarket trading after the group lowered its sales growth forecast this year in China and internationally.

* Visa - The group's stock is down 1.2% in premarket trading despite a better-than-expected quarterly profit announced Tuesday.

* Mondelez - The maker of Oreo cookies fell 2% in premarket trading as investors punished the group's failure to raise its full-year profit forecast, even though sales were revised upward.

* Mattel - The Barbie doll maker's shares jumped 5.3% in premarket trading after the company raised its full-year sales forecast on Tuesday.

* AMD gained 1.4 percent in premarket trading as the semiconductor maker said Tuesday it expects its current-quarter sales to beat Wall Street expectations thanks to strong demand for its chips used in data centers and video game consoles.

 

Analyst recommendations:

  • Infinity Pharma reported earnings and sales that topped estimates, which led Wells Fargo Securities to raise its recommendation on the stock and sharply increase its price target. After Microsoft unveiled strong results and an upbeat outlook, Goldman Sachs decided to keep its Buy rating. Peel Hunt changed its recommendations on Flutter, Virgin Money UK and FirstGroup.
  • Cadence Design : JPMorgan adjusts price target to $175 from $160, keeps overweight rating
  • FirstGroup Plc: Peel Hunt upgrades to buy from hold. PT up 19% to 100 pence
  • Flutter: Peel Hunt upgrades to buy from reduce. PT up 18% to 14,800 pence
  • Hasbro : Goldman Sachs adjusts pt to $121 from $112, maintains buy rating
  • Infinity Pharma: Wells Fargo Securities upgrades to overweight from equal-weight. PT jumps by 821% to $14
  • Lennox International : Goldman Sachs adjusts price target to $315 from $313, maintains sell rating
  • MGM Resorts: Goldman Sachs upgrades to neutral from sell. PT lifted 13% to $43
  • ResMed: Jefferies upgrades to hold from underperform. PT down 9.2% to $240
  • Merck : Truist assumes Merck & Company at buy rating with $92 price target
  • Microsoft: Goldman Sachs keeps Buy rating. The target price is unchanged at USD 340.
  • NBT Bancorp:  Piper Sandler upgrades to overweight from neutral. PT up 19% to $40
  • Reckitt Benckiser: RBC is keeping its Neutral rating. The target price is reduced from GBp 6500 to GBp 6000.
  • Virgin Money UK: Peel Hunt raises its recommendation to buy from add. PT up 34% to 264 pence
  • Vodafone: Goldman Sachs keeps Buy rating. The target price continues to be set at GBp 180.
  • Tenet Healthcare : Seaport Global Securities adjusts tenet healthcare pt to $85 from $80, maintains buy rating
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